Austria freezes assets of former U.S. diplomat's wife

VIENNA (Reuters) - Former top U.S. diplomat Zalmay Khalilzad and his wife are fighting the seizure of her Austrian bank accounts, lawyers for the couple said after a magazine reported U.S. authorities were investigating him for suspected money laundering.

Profil magazine cited legal documents discovered in paper recycling bins outside a Vienna justice facility for its report this week that Khalilzad - U.S. ambassador to Afghanistan, Iraq and the United Nations under President George W. Bush - was being investigated.

It said Vienna prosecutors, acting on a U.S. request for legal assistance in 2013, got a court in February to freeze seven accounts owned by his wife, author Cheryl Benard, who is a citizen of both the United States and Austria.

Profil said Khalilzad, 63, was suspected of collecting large sums from construction and oil companies in Iraq and the United Arab Emirates and sending $1.4 million dollars of this to Benard's bank accounts in Vienna.

Vienna prosecutors spokeswoman Nina Bussek confirmed an investigation was under way but declined to give more details.

A joint statement issued by Vienna law firm Wolf Theiss and U.S. law firm Hogan Lovells said no charges had been brought against Khalilzad or Benard, who were contesting the seizure of the accounts.

It said the U.S. Department of Justice (DOJ) in May 2013 sent Austria a routine request for records of some Vienna bank accounts in Benard's name. The request did not seek the seizure of assets or contain evidence of money laundering or other offenses, it said.

"However, for reasons that remain unclear, an Austrian prosecutor ignored the plain language of the DOJ request and froze Ms Benard's accounts solely on the basis of the DOJ's request for information," the statement added.

It said news reports on the case stemmed from an unauthorized leak of confidential court materials, which it called a "gross violation" of the couple's privacy.

Khalilzad is now head of Khalilzad Associates, a Washington-based business consultancy. Benard, a novelist, is a researcher with the RAND Corporation and heads an advocacy group that supports cultural activism in areas marred by war.

(Reporting by Michael Shields and Shadia Nasralla and by Aruna Viswanatha in Washington; Editing by Howard Goller)